The Advantages of a Roth IRA

Planning for retirement is one of the most important financial decisions that a person will ever make, and many people feel overwhelmed with the possibilities. There are many investing options that are available to people. But, which one is the right choice? The Roth IRA has quickly become one of the cornerstones of a person’s financial plan since the plans were introduced in 1997. And, there are many reasons why a Roth IRA has become a very popular choice in investing circles.

Tax Free Growth

The greatest benefit of a Roth IRA is that the earnings grow tax free. Investors put their money in a Roth IRA with after tax dollars, and any earnings, interest, dividends, or capital gains that the investment earns is not taxed when the investor withdraws the money in retirement. Investors must have held the assets in the account for at least five years and must wait until he or she is 59 ½ years-old for the withdrawal to be penalty free.

Easy Withdrawal

Another benefit of a Roth IRA is that it offers easy withdraw for the funds that a person has contributed. Any direct contributions that an investor makes, not the interest earned, can be withdrawn at any time without paying taxes or penalties. This advantage of easy withdraw allows investors to have a lot of options available should they need access to their money in an emergency.

Multiple Retirement Accounts

As long as an investor does not violate the yearly contributions limits, he or she can invest in multiple Roth IRA accounts. As of 2011, investors could contribute up to $5,000 per year in a Roth IRA if the investor is 50 years-old or younger. Over the age of 50, an investor can make an additional $1,000 catch up payment for a total of $6,000 per year. An investor can also have a Roth IRA accounts in addition to a 401k retirement plan through his or her employer, Traditional IRAs, and even additional Roth IRAs.

No Minimum Withdrawals

Unlike a Traditional IRA or a 401k retirement plan, there are no mandatory withdraws required for Roth IRA accounts. Traditional IRAs and 401k retirement plans require investors to begin withdrawing their money when they reach the age of 70 ½. Because of this fact, Roth IRA investments can even be passed on to heirs through a will or estate plan. An investor’s heirs then have several options for the cashing in of the investment, or they can even keep it for their own retirement savings as well.

Retirement planning is very important, and a Roth IRA is an excellent option for most investors to help in their planning. Many investors use Roth IRAs as an integral part of their retirement planning and retirement portfolio because of the many advantages that the flexible retirement plan offers investors.

Hank Coleman is the founder of several financial blogs, focusing on topics such as the advantages of opening a Roth IRA for your retirement planning strategy. He is an entrepreneur and professional in the government sector. Hank holds a Bachelor’s degree in Business Administration, a Master's in Finance, and is currently studying for his Certified Financial Planning (CFP) credentials. Always looking for a trusted financial institution for advice and tips he tends to look up information at http://www.discoverbank.com more often than not.